The project described in this paper was undertaken to demonstrate that finite element analysis can be used to define the parameters of structural health monitoring sensing system. Such an approach to sensor system property definition is necessary because in actual applications one will almost never have a damaged structure available to test. Instead, one will have to postulate the anticipated damage, simulate that damage with a numerical model and then analyze the computational data to determine the necessary properties of the sensing system (number, type, location, sensitivity, bandwidth). To demonstrate this process, a finite element model was constructed of a simulated three-story building used for damage identification experiments. Damage was introduced by loosening bolts in the connections of the columns to plates representing the floors the structure. Of particular interest was modeling slip in joints as a function of bolt torque and predicting the smallest change of torque that could be detected experimentally. After being validated with modal analysis results from the physical structure, the model was used to produce data to test the capabilities of damage identification algorithms and define the sensing system properties. This paper describes the finite element model that was constructed, the results obtained, and proposed future uses for such model as part of an integrated approach to structural health monitoring.