Recent significant developments within process systems engineering demonstrate a need for more-flexible tools to handle the many diverse model-based tasks within product and process synthesis, design, innovation, and operation. Consequently, it is relevant to have a closer look at one of the modeling methodologies that have emerged. This paper addresses functional modeling for the purpose of the object system under investigation. The purpose of functional modeling is to represent the relations ships between the system goal and the underlying phenomena. The role of different aspects of functional modeling within the ongoing development of process systems engineering is analyzed. The fundamental principles of functional modeling for the object under investigation are presented and functional modeling hermeneutics are defined as translating the modeling goal into desired system properties, identifying the theory needed to model the system to represent these properties and identifying criteria for evaluation of system purpose and performance. Different types of functional models are developed, leading up to a discussion of their relation to quantitative computational physicochemical models. The application of functional modeling concepts is reviewed first for computer-aided molecular design then for process design, innovation, and finally for process monitoring including alarm handling. Within process modeling, it is demonstrated that functional modeling hermeneutics can be viewed as a common foundation for many different functional model types applied in diverse areas, such as monitoring, alarm handling, fault detection, and consequence reasoning, as well as for traditional simulation with computational physicochemical models. The concepts of interpretation or hermeneutics of modeling and design are suggested as being essential for chemical engineering science. The paper concludes that, with the desire for more-flexible tools within process systems engineering, it may be worthwhile to base such tools on the functional modeling paradigm as a common foundation for the different model types.