A method for identifying observation points for integrated circuit (IC) testing includes receiving a netlist for an IC that includes a first subcircuit and a second subcircuit; determining, from the netlist, one or more observation points, each determined observation point corresponding to an output node which provides observability, into at least the first subcircuit, of an effective number of gates above a specified threshold; and inserting a design for test element into a layout file of the IC at each determined observation point. Observation points can be determined by transforming the netlist into a node graph; assigning a same initial value to a value field of each node; and propagating values in the value fields of the nodes until all nodes with a succeeding edge have a value of zero in their value fields.