Defect detection in photovoltaic (PV) modules and their impact assessment is important to enhance the PV system performance and reliability. To identify and analyze the defects, an improved outdoor infrared (IR) thermography scheme is presented in this study. The indoor (dark) and outdoor (illuminated) IR experiments are carried out on normal operating and defective PV modules. The indoor and outdoor measurements for normal operating modules are similar. However, the measurements for defective modules show difference i.e. the outdoor images show fewer or not at all defects in comparison to indoor images. Subsequent to this, outdoor imaging is carried out with our improved outdoor thermography scheme. This scheme is based on modulating the temperature of PV module through altering the electrical behavior of single cell. Therein, a PV cell is shaded in different fractions to attain different current conditions between open circuit and maximum power point, that causes temperature changes in series connected cells leading to different temperature conditions. The images obtained by this scheme provide clearer and detailed information about defects which is much similar to that given by indoor IR images. The severe and mild defective regions show temperature difference of more than 30 degrees and 20 degrees respectively in outdoor. The performance factor (PF) based on translated power output is also calculated for studied two modules that represents the quantitative impact of defects. The PF for PV module 1 and 2 is reduced from 97% to 31% and from 96% to 88% respectively with induction of defects. The PF values correlate with IR measurements of these modules. Furthermore, an image processing scheme comprising image filtering, color quantization and edge detection operations, is presented, that locate the edges of severe and mild defective regions in IR images.