Contemporary approaches to quality management in mental health utilize methods derived from traditional quality assurance and industrial quality improvement. Quality assurance involves the use of measurable indicators to monitor and evaluate care. Sentinel event indicators refer to high risk events that require review each time they occur. Rate indicators refer to events that are reviewed in the context of trends and patterns. The process of choosing and developing indicators should involve identification of the indicator topic, the monitoring objectives, data collection mechanisms, and responsible staff. As well, indicator data must be evaluated, actions taken, and communication of results must occur. Positive results, like positive diagnostic findings, point to a probability of the presence of a quality related issue. Quality improvement methods have led to a further evolution of efforts to promote quality care. A major goal of quality management is to utilize data to improve clinical decisions. Reaching this important goal is difficult in mental health due to the uncertain relationship between interventions and outcomes of care. In the effort described,, interventions were initiated to improve decisions relating to clinical risk management and resource utilization. Administrative restructuring enabled real-time review procedures and retrospective data analysis focused on decisions related to clinical instability and on permissive and restrictive clinical decisions. Permissive decisions were defined as decisions to allow off-ward privileges for patients whose level of functioning scores suggested the need for greater restriction. Restrictive decisions involved extending hospitalization of low risk patients. Inappropriate permissive or restrictive decisions are undesirable from both risk management and quality-of-care perspectives.(ABSTRACT TRUNCATED AT 250 WORDS)