Diabetic Retinopathy (DR) is an adverse change in retinal blood vessels leads to blindness for diabetic patients without any symptoms. Diabetes is characterized by imbalance level of glucose in the human body. The optic disc (OD) is the major retinal landmark. Localization of OD is an important step in fundus image analysis and to develop Computer Aided Diagnosis tool for DR. OD center detection is necessary to reduce false positive rate in the detection of exudates (EXs). EXs is the white lesion present in the retina which is the early symptom for the diagnosis of DR. OD is detected using intensity variation algorithm and EXs is segmented using inverse surface adaptive thresholding algorithm. This algorithm achieves better result in localizing OD and segmenting EXs when compared to literature-reviewed methods. The maximum intensity variance method is used to locate OD with average ACC of 96.54%, 98.65%, 98.12%, 99.23%, 99.81% and 98.47% in DIARETDB0, DIARETDB1, MESSIDOR, DRIVE, STARE and Bejan Singh Eye Hospital databases with less computation time of 102 ms, 108 ms, 120 ms, 93 ms, 110 ms and 131 ms. The inverse surface adaptive thresholding method has achieved an SE of 97.43%, 98.87%, 99.12%, 97.21%, 98.72%, and 96.63%, a SPE of 91.56%, 92.31%, 90.21%, 90.14%, 89.58%, 92.56% and an ACC of 99.34%, 99.67%, 98.34%, 98.87%, 99.13%, 98.34% for DIARETDB0, DIARETDB1, MESSIDOR, DRIVE, STARE and Bejan Singh Eye Hospital databases respectively.