AI Observability: Key Concepts And Best Practices

As Generative AI (GenAI) becomes business-critical, organizations require specialized monitoring approaches beyond traditional observability to address AI-specific challenges, such as multi-step execution, non-determinism, and debugging complexity. 

AI observability involves continuous monitoring, tracking, and analyzing AI systems to ensure reliable performance, detect anomalies, and maintain compliance. 

This article explains the concepts behind AI observability, explores RAG and AI agent-specific observability considerations, and provides practical implementation strategies and recommendations. 

Summary of Key AI Observability Concepts 

Why do AI applications need observability?

Imagine you’re responsible for debugging a critical production issue where your AI system gave a customer incorrect financial information. In traditional application systems, you can reproduce the exact conditions that led to the error and fix the code. However, GenAI applications are non-deterministic: they generate different responses based on temperature settings, random seeds, or minor context changes. 

Non-deterministic behavior

The issues with non-deterministic behavior are further complicated by AI agents that think, plan, and act autonomously. Agents perform complex and multi-step tasks that access multiple knowledge bases, reason about the information, call various APIs, and synthesize it all for the user. Each of these steps represents a potential point of failure. Add to this, LLMs tend to hallucinate and provide answers out of context. Without visibility into each decision point and intermediate result, teams struggle to understand where the error comes from. 

Tendency for output degradation

Another aspect that makes AI applications difficult to control is the tendency for output to degrade over time for several reasons. For example, increasing the length of context often leads to a drop in performance because of context rot. Another example, with RAG systems, is that the embedding quality in vector databases deteriorates as new content is added. Degradations go unnoticed until the response quality becomes noticeably bad. Organizations need continuous monitoring tools that detect these gradual shifts before these degradations become critical issues.

Compliance requirements

AI observability systems also play a critical role in ensuring compliance. Organizations in regulated industries must comply with HIPAA, PCI DSS, and GDPR while preventing bias, PII leakage, and harmful content generation. Policy violations accumulate without proper monitoring and audit trails, resulting in increased regulatory risk and reputational damage. 

Powering data engineering automation for AI and ML applications

Learn More

• 
  
  
  Enhance LLM models like GPT and LaMDA with your own data
• 
  
  
  Connect to any vector database like Pinecone
• 
  
  
  Build retrieval-augmented generation (RAG) pipelines with no code

Core AI observability patterns 

Core observability patterns, practices, and tools are useful across all AI systems.  

Prompt lifecycle tracking

One prominent example is observing and tracking the prompt lifecycle. As information flows through an AI system, prompts change through the merging of original user input, preprocessing steps, prompt template construction, and variable substitution. These components generate the final prompt for the model. Prompt tracing captures these components and prompt versions, enabling AI teams to determine how specific prompt modifications affect model performance. Effective prompt traceability systems should capture prompt metadata and performance/cost metrics.

Model metadata

Model metadata, including model names, versions, deployment configurations, and hyperparameters, must also be tracked. With small changes in model versions, the output can undergo drastic changes. Hence, it is important to have a lineage of model metadata captured for test scenarios across a long timeline. 

Model drift

Model behaviors change significantly over time for a variety of reasons like outdated embedding models, gradual variation in context or input compared to originally planned ones, etc. Such changes can lead to degradation of output and needs to be captured in the observability metrics. 

Hallucination detection

Models tend to hallucinate and provide answers that are factually incorrect, irrelevant, or not grounded in context. Observability pipelines must have metrics related to faithfulness, groundedness, and relevance against fact verification datasets to ensure such issues are timely captured. 

Latency and reliability issues

Time taken by an agent to respond is a key aspect of the overall experience and the efficiency improvement it can bring. AI observability pipelines capture latency broken down at the component level and overall level experienced by the users. Reliability metrics measure the error rate and the availability of AI applications. 

Guardrail monitoring

Another aspect that requires definitive focus is guardrail configurations. Guardrail systems protect AI applications from generating harmful, biased, or inappropriate content. Observability systems log content safety violations, bias detection triggers, PII leakage attempts, and other policy compliance checks. 

Architecture-specific AI observability patterns

Core observability processes vary according to differences in AI architecture.

Retrieval Augment Generation (RAG)

RAG architectures involve several stages, like query processing, retrieval, vector database search, embedding ranking and filtering, and the final response generation. Each stage introduces potential failure points. Consider monitoring the following.

User queries and intent

RAG observability systems log user inputs, preprocessing steps, and intent classification results to understand query patterns, identify knowledge gaps, and optimize retrieval strategies. 

Prompt templates

Monitoring systems track prompt template construction, variable substitution, context injection, and final prompt composition to optimize prompt engineering and identify scenarios where context integration fails. 

Retrieval system performance

Vector database performance impacts RAG quality. Key metrics to track include retrieval latency, similarity score distributions, document relevance ranking, and index performance. 

Retrieval system lineage

The most important part of any RAG implementation is the data sources it uses and the steps it takes to feed relevant data to the context and generate responses. The lineage of data used in RAG is a key investigation element whenever things go wrong. Data processing frameworks that provide details about the lineage of the context used in generating a response and provide flow insights are very valuable. Frameworks like Nexla provide out-of-the-box, prebuilt RAG implementations with the ability to visualize the flow of data. Nexla RAG Data Flow type helps visualize which datasets are queried using API calls. 

Generation quality and relevance

RAG output quality depends on retrieval accuracy and generation faithfulness. Monitoring systems track response relevance scores, factual accuracy metrics, citation quality, and hallucination detection. AI teams need visibility into whether responses accurately reflect the retrieved context and/or exhibit hallucinations.

AI agents

AI agents are multi-component systems that plan, reason, and execute multi-step tasks. These models interact with external systems, such as databases and APIs, enabling them to work autonomously with real-world systems. They also have memory components for maintaining context across interactions and orchestrating components to coordinate multi-step workflows.

Agent planning and decision making

Agent observability systems capture the reasoning behind each decision so you can observe how agents interpret tasks, prioritize actions, and adapt their approach based on intermediate results. They capture logging planning steps, goal decomposition, strategy selection, and the decision trees agents use.

Tool use and results

Agents use external tools and APIs to accomplish tasks. Monitoring systems track tool selection decisions, parameter passing, execution results, error handling, and tool-specific metrics impacting agent performance.

Memory usage and context management

Memory systems retrieve relevant information across conversations and tasks. AI teams track memory writes, retrievals, context window management, and information prioritization. Teams need visibility into agent context management, when they “forget” essential information, and how memory limitations impact performance. 

Multi-step execution flows and traces

Agent workflows involve an orchestrated and automated sequence of actions. Tracing connects these steps into coherent narratives that reveal how agents progress towards their goals, handle failures, and adapt. These insights enable AI teams to optimize agent workflows and identify bottlenecks.

Logs, Traces & Metrics 

AI monitoring is often associated with detecting hallucination and ensuring relevance; however, a comprehensive AI observability strategy must also include the production infrastructure. 

Modern infrastructure observability comprises three key components: logs, traces, and metrics. These standard observations apply to AI applications as they get implemented in the form of microservices and deployed to production using continuous delivery pipelines.

Logs

Logs preserve the context necessary to understand the behavior of past AI systems.

Every event, from the data processing layer to model predictions, must be logged in detail. Logs reveal:

1. Data inputs that triggered the issue
2. Model parameters used, and
3. Other errors encountered in the data and model pipelines. 

Traces

Logging is used for individual events, but logs alone don’t inform flow-level behavior. For example, a single user may trigger a complex set of APIs that activate different components of the AI system (e.g., accessing data storage, running data through processing pipelines, loading data into the model inference service, etc). 

Traces connect these disparate events into a single story about the executed flow, revealing the bottlenecks, failures, and unexpected behaviors. Traces are useful for optimization when we need to examine entire flows systematically.

Metrics

While logs tell you what happened, and traces show how it happened, we need to know if the system’s behavior is expected. 

Metrics track model accuracy trends, measure retrieval relevance scores, monitor token consumption rates, and alert on safety violations. Tracking metrics allows you to take preemptive measures and act before systems fail.

AI observability implementation

The first step in implementing AI observability is to choose a tool or a framework that supports all the features mentioned above. It must support core observability features like prompt lifecycle tracking, model metadata tracking, model drift detection, hallucination detection, and latency tracking. It should also support data-specific observability metrics and architecture-specific observability features relevant to patterns like RAG and agents. Unfortunately, frameworks that support all of these under one umbrella are rare, and engineers often have to stitch together multiple frameworks to accomplish full observability. An example of an open source AI observability framework is OpenLit. It supports all core observability features like latency, hallucination detection, prompt lifecycle tracking, etc. The following section describes how one can use OpenLit for implementing AI observability. 

Implementing AI Observability with OpenLit

You can integrate OpenLit observability with OpenAI, as shown below, to track key metrics, such as response time and token usage. You can visualize the results using a dashboard.

First, initialize the OpenLit client with the dashboard. OpenLit automatically captures the following metrics:

• Request/response content
• Token usage and costs
• Response times
• Model parameters
• Success/failure rates

import openlit
from openai import OpenAI
import time
from datetime import datetime

# This automatically connects to OpenLit's cloud dashboard
openlit.init(
    application_name="OpenAI demo",
    environment="development",  # or "production"
)

Next, set up the OpenAI chat component for a single-turn reply based on a user query.

class openaiApp:
    def __init__(self):
        self.client = OpenAI()
    
    def chat(self, user_message, model="gpt-4"):
        """Simple OpenAI chat"""
        
        try:
            response = self.client.chat.completions.create(
                model=model,
                messages=[
                    {"role": "system", "content": "You are a helpful assistant."},
                    {"role": "user", "content": user_message}
                ],
                temperature=0.7,
                max_tokens=150
            )
            content = response.choices[0].message.content
            
            return content
            
        except Exception as e:
            raise

To run this, instantiate the OpenAI class created above that responds to eight test conversations

# Instantiate the OpenAI chatbot
app = openaiApp()

# Single-turn queries 
test_conversations = [
    "What is machine learning?",
    "Write a Python function to calculate fibonacci numbers",
    "How does blockchain technology work?",
    "What is the capital of France?",
    "Write a detailed essay about climate change"
]

# Run through each query to get each response
for i, message in enumerate(test_conversations, 1):
    try:
        app.chat(message)
            
        # Small delay between requests to see timing patterns
        time.sleep(2)
            
    except Exception as e:
        print(f"Failed: {e}")
        continue

Finally, you can create a dashboard with OpenLit, which resembles the following.

Data observability 

OpenLit provides a framework that can be used to implement AI observability by adding a few lines of code in your AI implementation. 

That said, it still misses out on an important part of AI observability – Data observability.  In an enterprise context, datasets often go through multiple transformation stages before ending up as an input to AI. For example, consider the scenario below from an e-commerce website. Customers add reviews on their website that end up being in the review database connected to the website. It is then extracted and added to a data lake. To implement a RAG, the same dataset is then pushed to a vector database. The lineage in this case would look as follows.

Lineage of a dataset from a transactional database to a vector database

In such cases, the sequence of transformations undergone by the data and its origin can not be captured through frameworks like OpenLit. This is where data integration frameworks like Nexla can help. Nexla RAG Data flow types can help. They can help visualize the lineage of data and flow of data when an RAG is initiated through an API call.

Best practices for AI observability

AI observability practices are constantly evolving, but we summarize the best practices to follow for more observable enterprise-grade AI systems.

Observability by design strategy

Monitoring should be embedded at the earliest stages of AI system development, rather than retrofitting observability tools after deployment. A straightforward approach is to define use case metrics that address AI’s unique risks, including bias detection, toxicity monitoring, and PII leaks. 

Organizations must establish stakeholder ownership early in the development phase, and designated teams should be responsible for monitoring and building AI observability systems. 

For example, data scientists own model quality metrics, security teams manage safety violations, and platform engineers handle infrastructure performance. Throughout the development lifecycle, teams establish escalation procedures and response protocols to address AI incidents before they impact users or violate compliance requirements.

Tracking and tooling

Effective AI observability processes should utilize AI-specific libraries and frameworks that integrate with traditional application monitoring systems. Tooling should address all relevant parts of the AI system, including:

• Prompt management and versioning
• Data and model artifact management systems
• Lineage tracking of model versions, training data, and deployment configuration
• Data integration platforms for automated data quality monitoring throughout the AI pipeline

Teams need to be able to analyze performance changes resulting from specific model updates, prompt modifications, or data quality shifts, while maintaining the audit trails necessary for debugging AI behaviors. 

Nexla is an AI integration platform that enables companies to deliver accurate, enterprise-grade AI systems quickly. 

They provide a comprehensive platform based on data products, the most essential asset for AI systems. There is a saying in the AI community that goes “garbage-in, garbage-out”. Nexla can monitor all data pipelines, enrich data with necessary metadata, perform lineage tracking, and continuously monitor data characteristics – sending notifications and alerts when needed. 

Architecture-specific best practices

Different AI architectures require observability strategies that address their unique usage patterns and failure modes. To ensure safe and fair outputs, all enterprise-grade LLM applications must monitor for bias, toxicity, and PII leakage. 

AI agents require logging that collectively monitors the reasoning components, tool usage patterns, memory management, and each workflow trace. RAG systems need monitoring, embedding drift, retrieval performance, and context relevance to maintain high-quality responses as data and query patterns evolve. 

These architecture-specific observability systems prevent critical failure modes while providing actionable insights to improve model performance, safety, and user satisfaction.

Data lineage

AI systems require large amounts of data from several sources within an organization to be effective. Data lineage tools provide end-to-end visibility into how data flows through the AI system, from raw data sources to final model outputs. 

Effective lineage tracking captures the data transformations, feature engineering processes, and model training pipelines. The artifacts that should be tracked include documenting the data sources and their quality characteristics, the transformation logic and feature engineering steps, model training datasets, and deployment configurations and environment changes. This enables teams to pinpoint the root causes of model performance degradation, ensure compliance with data governance policies, and maintain reproducibility. Unfortunately, Most AI observability framework misses out on functionalities related to data lineage tracking. Data integration frameworks like Nexla can help bridge this gap. 

Nexla Data Lineage View

In the above screenshot, one can see Nexla lineage tracking in action. It shows that the data originated in AWS S3, then was created as a dataset and an API was built on it to serve it. 

AI governance

The strategy, tools, and best practices feed into an organization’s AI governance framework. Organizations should develop structures and processes that define the roles, responsibilities, and decision-making authority for their AI initiatives. 

This includes establishing model approval processes, defining use policies and ethical guidelines, establishing compliance monitoring, and creating an incident response procedure for AI-related issues. Teams should address model risk management, including regular model validation, bias testing, and performance monitoring against established benchmark datasets. 

Finally, maintain documentation standards that support auditability, establish model update processes, and ensure collaboration among technical teams, legal, compliance, and business stakeholders.

Last thoughts

AI observability is essential for organizations deploying Gen AI at scale. Effective AI observability requires more than retrofitting traditional tools. It requires specialized approaches that address the unique challenges of LLMs, RAG systems, and AI agents.

Early investment in AI observability enables organizations to deploy AI systems with confidence. A critical aspect of implementing AI observability is ensuring the data pipelines are set up correctly, with sufficient information to feed into AI observability, including data lineage and data governance. 

Nexla is an enterprise-grade data integration platform designed to make data AI-ready. Learn more here.