The emphasis of most PCA process monitoring approaches is mainly on procedures to perform fault detection and diagnosis given a set of sensors. Little attention is paid to the actual sensor locations to efficiently perform these tasks. In this paper. graph-based techniques are used to optimize sensor locations to ensure the observability of faults, as well as the fault resolution to a maximum possible extent. Meanwhile, an improved PCA that uses two new statistics of PVR and CVR to replace the Q index in conventional PCA is introduced. The improved PCA can efficiently detect weak process changes. and give an insight to the root cause about the process malfunction. Simulation results of a CSTR process show that the improved PCA with optimized sensor locations is superior to conventional methods in fault resolution and sensibility.