The invention was created in the process of developing a system known as the Smart Monitoring and Diagnostic System (SMDS) for packaged air conditioners and heat pumps used on commercial buildings (known as RTUs). The SMDS provides automated remote monitoring and detection of performance degradation and faults in these RTUs and could increase the awareness by building owners and maintenance providers of the condition of the equipment, the cost of operating it in degraded condition, and the quality of maintenance and repair service when it is performed. The SMDS provides these capabilities and would enable conditioned-based maintenance rather than the reactive and schedule-based preventive maintenance commonly used today, when maintenance of RTUs is done at all. Improved maintenance would help ensure persistent peak operating efficiencies, reducing energy consumption by an estimated 10% to 30%. The SMDS detects RTU performance degradation and select operational faults and provides estimates of the accrued energy and cost impacts weekly after detection of a performance issue. It uses only two sensors per each RTU, outdoor-air temperature and total power demand, both collected at one-minute intervals. Software code based on the methodology and algorithms developed by PNNL in a collaborative develop effort with NorthWrite Inc. and Universal Devices implement the detection processes and estimation of energy and cost impacts. The methodology, algorithms and original prototype software were developed exclusively by PNNL. Two versions of the SMDS, the Hardware SMDS and the Cloud SMDS, have been prototyped and tested on buildings in the field and/or on data from buildings. Both versions use the same methodologies for detection of performance degradation and for detection of specific faults. The inventive features are the methodologies developed for 1) detecting performance degradation in cooling by packaged air conditioners and heat pumps, 2) detecting operational faults in these units, and 3) inferring building operating schedules, all using only sensed measurements of the local (e.g., on the rooftop of the buildings where the RTUs are installed) outdoor-air temperature and the total power consumption of the RTU.