A technique facilitates evaluation of a tool, such as a drill tool. The technique comprises collecting tool data via a sensor on a given tool during use of that tool in a given operation, e.g. drilling operation. Additional data related to the tool is accumulated from a plurality of sources external to the tool. For example, data may be collected from both downhole sources and surface sources. Upon completion of the operation, the tool data is transmitted to the surface for processing on a processor system in combination with the data cumulated from sources external to the tool. The processing may be performed in real time as the tool data is received from downhole to enable a comprehensive diagnosis of tool health prior to retrieval of the tool to the surface.