AbstractAs an efficient data structure for representation and manipulation of Boolean functions, binary decision diagrams (BDDs) have been applied to network reliability analysis. However, most of the existing BDD methods on network reliability analysis have assumed perfectly reliable vertices, which is often not true for real‐world networks where the vertices can fail because of factors such as limited resources (eg, power and memory) or harsh operating environments. Extensions have been made to the existing BDD methods (particularly, edge expansion diagram and boundary set–based methods) to address imperfect vertices. But these extended methods have various constraints leading to problems in accuracy or space efficiency. To overcome these constraints, in this paper, we propose a new BDD‐based algorithm called ordered BDD dependency test for K‐terminal network reliability analysis considering both edge and vertex failures. Based on a newly defined concept “dependency set”, the proposed algorithm can accurately compute the reliability of networks with imperfect vertices. In addition, the proposed algorithm has no restrictions on the starting vertex for the BDD model construction. Comprehensive examples and experiments are provided to show effectiveness of the proposed approach.