NAVEEN BALANI

[Link]/IN/NAVEENBALANI/
 BUILD AI AGENTS THE RIGHT WAY

INTRODUCTION
Building production-ready AI agents with cost, carbon, and conscience in mind
isn’t just a technical task—it’s a design philosophy rooted in responsibility, precision,
and long-term viability.

As AI capabilities accelerate, organizations across industries are eager to deploy

agentic systems for everything from customer support to operational intelligence. But
in the rush to automate, many projects are built on fragile foundations—piecemeal
orchestration, unclear objectives, and little regard for sustainability or governance.

True agentic systems are not mere toolchains. They are adaptive, goal-driven entities
—designed to reason, collaborate, and operate within clear boundaries of compute,
cost, and conscience. They must be aligned not only with business value but also with
ethical integrity, regulatory readiness, and environmental impact.

This paper introduces a comprehensive 10-step lifecycle for building AI agents

responsibly—from de ining purpose and roles, to choosing the right models, validating
behaviors, optimizing carbon and cost, and embedding trust through governance and
traceability.

To ground this framework in practice, we’ll conclude with a detailed use case from the
inancial services sector—demonstrating how each step can be applied to develop a
responsible, scalable AI agent for loan underwriting.

1. DEFINE PURPOSE & REQUIREMENTS

Every successful AI project begins with a clear problem de inition and detailed
requirements gathering. Identifying the speci ic real-world task ensures alignment
with business goals and prevents misalignment or scope creep.

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1.1 PROBLEM FRAMING

Clearly articulate the real-world problem your AI agent will solve. A well-framed
problem ensures focus and alignment with intended outcomes. For instance, in
inance, the task might be:
"Automate anomaly detection in transaction data to lag potential fraudulent activities."

1.2 STAKEHOLDER MAPPING

Identify who will interact with or be impacted by the agent. For instance, in banking,
this typically includes:

• Customers: Expecting accurate, secure interactions

• Analysts or Underwriters: Needing clear, reliable insights
• Compliance O icers: Requiring transparency and accountability
• IT and Security Teams: Ensuring data safety, e iciency, and infrastructure
stability

1.3 SUCCESS METRICS

Establish clear, measurable indicators of success that cover performance, operational
e iciency, compliance, and sustainability, such as:

• Decision Quality: Agreement with expert human decisions

• Error Rates: False positives/negatives in critical tasks like fraud detection
• Agent Response Time: Time to provide outcomes for standard tasks
• Escalation Handling Time: Speed of human-in-the-loop interventions
• Cost E iciency: Per-decision processing costs aligned with business
expectations

• Carbon Impact: Environmental footprint per decision

• Compliance Adherence: Zero tolerance for regulatory or privacy violations

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• Human-AI Agreement: Consistency between AI recommendations and human

reviews

2. DESIGN THE AGENTIC BLUEPRINT

With a clearly de ined problem, stakeholders, and metrics, the next step is designing
an agentic architecture that is not only functionally e ective but also cost-e icient and
environmentally conscious from the outset.

2.1 DEFINE AGENT ROLES AND RESPONSIBILITIES

Each agent should serve a well-scoped purpose to promote specialization and
minimize redundancy. Assign roles that re lect both business logic and operational
boundaries.

For example, in a inancial analytics system:

• Data Retrieval Agent: Accesses APIs and databases e iciently using caching to
reduce redundant calls and network energy use.

• Analysis Agent: Performs model inference with lightweight or specialized

models where possible, conserving compute.

• Reporting Agent: Focuses on clear, concise output generation using token-

e icient summaries.

• Compliance Validator: Validates recommendations for regulatory adherence

and lags high-risk or high-cost paths for human review.

By explicitly assigning responsibility boundaries, teams can monitor which agents

drive higher compute or emissions and optimize accordingly.

2.2 TASK DECOMPOSITION AND WORKFLOW DESIGN

Break the problem into manageable, traceable subtasks mapped to agents. E icient
decomposition avoids bloated work lows and keeps both cost and emissions under
control.

Sustainable decomposition principles:

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• Avoid unnecessary task loops or polling behaviors.

• Ensure data is passed e iciently between agents without duplication.
• Design for short-lived sessions unless long-running memory is absolutely
required.

From inception, work lows should be assessed not just for functional e iciency but for
computational load, bandwidth usage, and emissions hotspots.

2.3 INTERACTION MODEL SELECTION

Select an agent interaction model that balances task e ectiveness with operational
sustainability:

• Sequential (pipeline): Easy to track and cost-e icient for predictable tasks.
• Parallel: Higher throughput but should be used judiciously, given increased
resource consumption.

• Hybrid: Recommended for dynamic control—e.g., running tasks in parallel only

when uncertainty or latency demands justify it.

Use carbon- and cost-aware decision logic to determine when to parallelize vs.
serialize.

2.4 MEMORY AND STATE MANAGEMENT

Memory strategies directly impact both performance and footprint:

• Ephemeral memory: Use short-term memory unless longer retention is

essential. This limits unnecessary storage and compute reuse.

• Persistent memory: When required, selectively store state—only retain what’s

useful across sessions.

• Shared state: Design shared memory carefully to prevent over-fetching or

repeated logging, especially in multi-agent setups.

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A well-designed memory policy reduces storage emissions, avoids redundant

computation, and supports explainability.

2.5 GOVERNANCE, OVERSIGHT, AND EFFICIENCY MONITORING

Embed governance into architecture—not just for compliance but also for tracking
ine iciencies and optimization opportunities:

• Audit Trails: Include low-overhead logging for understanding agent pathways,

compute usage, and resource intensity.

• Fail-safes and fallback logic: Ensure that agents gracefully degrade or escalate
to humans instead of running prolonged, indecisive loops.

• Cost & Carbon Monitoring Hooks: Tag agents and tasks with lightweight
telemetry for tracking per-task cost and emissions.

Sustainable agent systems are not just “green at the edge” but intelligently designed
from the core. Aligning architecture with cost and sustainability objectives ensures
long-term viability and governance alignment.

3. CHOOSE THE RIGHT MODELS & TOOLS

After designing the agentic blueprint, selecting the appropriate models and tools
becomes essential to ensure the system operates e iciently, economically, and
sustainably. This includes thoughtful trade-o s in model complexity, tool integration,
orchestration, and infrastructure choices.

3.1 MODEL SELECTION: FIT-FOR-PURPOSE OVER SIZE

Avoid defaulting to the largest or most powerful models. Instead, choose models that
match the speci ic task requirements while minimizing cost and environmental
impact:

• Use small language models (SLMs) or domain-speci ic models where general-

purpose LLMs are overkill.

• Evaluate task predictability: If a rule-based system or classi ier is su

icient
(e.g., threshold checks, simple scoring), prefer that over generative models.

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• Use model distillation or quantized models when inference cost or emissions is

a concern.

• Enable fallback hierarchies: Try lightweight models irst, escalating to heavier

models only if con idence is low.

Design Principle: Right-size your models to the precision and trust level required by
the task.

3.2 TOOL INTEGRATION: SMART AND SECURE CONNECTIVITY

Agents often rely on tools such as APIs, search utilities, databases, or enterprise
services. E icient tool selection and integration reduces latency, API costs, and
emissions:

• Limit the frequency and scope of API calls (e.g., batch queries instead of real-
time polling).

• Cache static data intelligently to avoid repetitive access.

• Restrict tool use through role-based permissions—only the agents that need
access should invoke tools.

• Prefer carbon-optimized APIs or datasets when available (e.g., local replicas of

public datasets).

Design Principle: Treat every external call as a cost center—for both money and
carbon.

3.3 ORCHESTRATION FRAMEWORK SELECTION

Choose an orchestration framework that supports your agentic interaction model,
transparency needs, and cost/sustainability tracking:

• Role-Based Coordination (e.g., CrewAI): Best for multi-agent systems where

agents perform distinct, reusable roles in a structured sequence or
collaboration.

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• Message-Passing Agents (e.g., AutoGen): Suitable for iterative re inement or

co-creation scenarios with asynchronous communication and human-in-the-
loop lexibility.

• Graph-Based Execution (e.g., LangGraph): Useful when tasks form a DAG with
branches, conditionals, or loops—good for work lows that vary by input context.

• Developer-Centric Toolkits (e.g., Google ADK): Favorable for engineering-

driven environments where deep customization, telemetry, and deployment
controls are needed.

Choose frameworks that enable observability, agent accountability, modular

reusability, and emission instrumentation.

Design Principle: Orchestration should not only enable collaboration but also enforce
e iciency.

3.4 INFRASTRUCTURE, COST, AND SUSTAINABILITY

Model and tool choices are inseparable from infrastructure:

• Choose low-idle compute environments like serverless functions or ine-tuned

container instances for short-lived tasks.

• Deploy closer to clean energy sources when possible; incorporate carbon-

aware scheduling.

• Monitor per-call cost and CO₂e emissions (mg CO₂) using internal telemetry or
tools like CarbonTrackers.

• Regularly audit high-volume tasks and prompts for compression, redundancy,

and fallback potential.

Design Principle: Infrastructure e iciency is not post-deployment—it is embedded in

system design.

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4. ENABLE CONTEXTUAL MEMORY

Contextual memory allows agents to operate coherently across tasks, retain insights,
and personalize responses. But memory also introduces compute and storage
overhead, making it critical to balance usefulness with e iciency.

4.1 TYPES OF MEMORY

Designing memory should begin with understanding what kind of context your agents
need and for how long.

• Episodic Memory (Short-Term):

Session-bound memory that captures current task context, recent exchanges,
and intermediate steps. Useful for prompt compression and avoiding redundant
computation.

• Long-Term Memory (Persistent):

Stores prior sessions, decisions, and structured knowledge for retrieval over
time. Suitable for personalization, learning from feedback, or referencing prior
judgments.

• Shared State Memory (Team Context):

Enables agents in a multi-agent system to collaborate by sharing task state,
documents, or partial results. Useful for coordination but must be tightly scoped
to avoid complexity or leakage.

Design Principle: Default to ephemeral memory; introduce persistence only where it

demonstrably improves outcomes.

4.2 MEMORY MANAGEMENT PATTERNS

In agentic systems, memory isn't just storage—it’s a strategy. Adopt well-de ined
memory management patterns to keep the system e icient and intelligible:

• Re lection Bu ers: Let agents periodically summarize recent actions or

decisions to reduce token usage and enable better downstream reasoning.

• Knowledge Consolidation Agents: Dedicate an agent to synthesize, compress,

or index multi-turn conversations or analytical outputs.

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• Context Capping: Use windowing strategies (e.g., last 3 turns only) to limit
memory use while maintaining relevance.

Design Principle: Treat memory size as a bounded, accountable resource, not an

unlimited canvas.

4.3 STORAGE AND RETRIEVAL OPTIMIZATION

Long-term memory often requires vector databases or document stores. E icient
design ensures minimal latency and compute cost:

• Index only relevant data—avoid storing raw transcripts or low-signal logs.

• Compress context documents to reduce retrieval load and emissions.
• Use retrieval-augmented generation (RAG) selectively, based on query intent or
con idence.

Design Principle: Think like a librarian—store only what’s valuable, and organize for
fast, low-cost access.

4.4 COST AND SUSTAINABILITY OF MEMORY

Memory can silently become one of the largest contributors to system bloat—
especially when agents indiscriminately read, write, or retrieve data. Consider:

• Vector DB queries can cost more than the model inference itself for large
document stores.

• Storing uncompressed transcripts increases storage energy use and carbon

footprint.

• Poorly scoped memory leads to context overload, increasing token processing

and latency.

Design Principle: Memory should be intentional, scoped, and measured—

instrumented for both compute and environmental impact.

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5. INCORPORATE REASONING & PLANNING

Agents aren’t just reactive responders—they can also become decision-makers when
equipped with the ability to reason, plan, and break down tasks. This capability marks
the di erence between a simple chatbot and a goal-oriented, autonomous system.

5.1 EMBEDDING STRUCTURED REASONING

Agents need a structured process to arrive at outcomes. Instead of jumping to
conclusions, well-designed agents should “think before acting,” which can be
achieved through explicit planning loops or multi-step reasoning frameworks.

Common patterns include:

• Chain-of-Thought Reasoning: Agents generate intermediate thoughts or

hypotheses before answering.

• Tree of Thoughts: Multiple parallel reasoning paths are explored, scored, and
pruned to select the best course.

• Scratchpads: Agents use internal memory to track steps and intermediate

outputs for review.

Use these reasoning modes in tasks like:

• Risk classi ication

• Multi-factor investment advice
• Compliance interpretation
E iciency Tip: Instrument reasoning loops to avoid runaway costs and token in lation.
Cap steps or con idence thresholds to auto-terminate when high certainty is achieved
early.

These strategies increase transparency and reliability, while enabling the system to
trace how a decision was made—crucial in inancial use cases like credit approval or
fraud evaluation.

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5.2 PLANNING AS A CORE AGENT CAPABILITY

Planning involves determining the sequence of subtasks an agent (or set of agents)
must perform to achieve an objective. This becomes especially powerful in multi-
agent systems where tasks are decomposed and delegated dynamically.

• Static Planning: Prede ined steps executed in order, suitable for ixed work lows
(e.g., KYC → Credit Check → Approval Recommendation).

• Dynamic Planning: Agent generates plan based on inputs. Ideal for customer-
speci ic queries or conditional work lows (e.g., detect anomaly → escalate →
retrieve policy).

Adopt one of the following planning strategies:

• Dedicated Planner Agent: Creates task graphs, assigns roles.

• LLM-Inline Planning: Model self-generates its own plan before action (requires
strong prompt engineering + guardrails).

Agentic Pattern: Planner–Executor–Veri ier loop ensures accountability, reduces error,

and supports auditable logs.

5.3 OPTIMIZE PLANNING FOR COST AND CARBON

While planning enhances performance, it can quickly lead to unnecessary agent calls
and in lated compute use if not scoped properly. Make reasoning loops sustainable:

• Limit the number of planning iterations.

• Use model con idence thresholds to decide when to plan or fall back to
defaults.

• Instrument planning steps with telemetry to monitor cost per reasoning loop
and emissions per decision.

• Classify tasks: simple (use templates), moderate (Chain-of-Thought), and

complex (Tree-of-Thought + veri ication).

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Sustainability Principle: Use shallow plans for frequent, low-risk decisions and
reserve deep, carbon-intensive reasoning for high-stakes scenarios.

5.4 HUMAN-AI HYBRID PLANNING

In critical inancial scenarios—loan denials, lagged frauds, investment suitability—

reasoning and planning should surface explanations for human validation.

• Enable agents to submit their planned action and rationale to a human analyst.
• Allow feedback loops to retrain, correct, or re ine agent behavior.
• Use visual planning trace (e.g., decision tree or CoT text trace) to assist rapid
review.

This hybrid model ensures transparency, supports compliance, and helps avoid model
overreach.

6. VALIDATE & SIMULATE BEHAVIOR

Before an AI agent can operate in the real world—especially within sensitive, regulated
domains like banking or inance—it must be rigorously validated. This step ensures the
agent is not only technically correct, but also behaviorally safe, reliable under stress,
and aligned with institutional policies. Validation should be conducted in both static
and dynamic settings to build trust and prevent downstream failures.

6.1 STATIC VALIDATION: PROMPT & MODEL BEHAVIOR

The irst layer of validation tests the agent’s response in isolated, prede ined
conditions. This focuses on correctness, consistency, and compliance—ensuring the
model behaves as expected across typical and edge-case inputs.

• Prompt Unit Testing

Create a library of test prompts for expected queries and verify the model
outputs the correct, safe, and policy-aligned response.
Example: A “Credit Assessment Agent” should not approve a loan when risk
indicators exceed de ined thresholds.

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• Persona & Scenario QA

Simulate di erent types of users and situations to test robustness.
Example: Ensure a inancial advisor agent o ers unbiased recommendations to
both high-net-worth and low-income users.

• Bias & Ethics Testing

Controlled variations are applied (e.g., lipping gender or ethnicity while keeping
other inputs constant) to assess the agent’s fairness. Simple fairness metrics—
like demographic parity or equal opportunity—are applied during static testing
to detect unintended disparities.

• Guardrail Testing for Safety & Bias

Validate that responses do not leak personal information, violate regulatory
boundaries, or show demographic bias.
Checklist: No hallucinated legal advice, no discriminatory phrasing, no
unsupported con idence in output.

Practice Tip: Integrate static validation into CI/CD pipelines for repeatable, automated
checks with every model or prompt update.

6.2 DYNAMIC SIMULATION ENVIRONMENTS

Static testing is essential but insu icient. Simulations mimic real-world interactions
and uncover laws that only emerge in the full agent work low—particularly for multi-
agent setups or tools that use external APIs.

• End-to-End Simulation Loops

Run agent work lows using synthetic datasets like past customer queries,
historical transactions, or dummy onboarding forms to observe full behavior
chains.

• Interactive Roleplay Testing

Simulate conversations between the AI agent and a virtual customer,
compliance o icer, or escalation handler to expose logic gaps or loopbacks.

• Stress & Chaos Testing

Test under abnormal conditions—missing inputs, rate-limited APIs, or degraded
tool performance—to evaluate resilience and fallback mechanisms.

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6.3 METRICS-DRIVEN BEHAVIORAL EVALUATION

Track agent behavior using both qualitative reviews and quantitative metrics. Evaluate:

• Performance: Median response time, token usage, and error rates

• Cost: $ per completed work low or per 100 queries
• Sustainability: Estimated mg CO₂ per decision using Software Carbon
Intensity(SCI)-aligned telemetry

• Risk indicators: Rate of hallucinations, inappropriate escalation, or policy

violations

Metrics should guide optimization, model selection, and trigger alerts when
thresholds are crossed.

6.4 HUMAN-IN-THE-LOOP FOR SIMULATION AUDITS

Simulation outputs must be reviewed by domain experts—especially for regulated
functions. Use manual audits to verify:

• Is the agent’s reasoning trace logical and compliant?

• Are edge cases handled safely or escalated properly?
• Would a human have made a similar decision?
Where possible, record the reasoning trace to support post-hoc analysis and
compliance documentation.

7. OPTIMIZE FOR COST, CARBON, AND

COMPLEXITY
Once your AI agent performs reliably in simulation, the next priority is operational
e iciency—ensuring that it delivers value without unnecessary cost, carbon overhead,
or architectural sprawl. Optimizing early prevents future rework and supports
scalability across use cases where margins, compliance, and sustainability matter.

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7.1 COST EFFICIENCY: TOKEN, MODEL, AND WORKFLOW

OPTIMIZATION
Every token processed by an LLM translates into cost. Managing this cost is critical,
especially for agents deployed at scale.

• Prompt Engineering:
Trim verbosity, remove unnecessary system messages, and avoid over-
specifying tasks. Use compact few-shot examples when needed.

• Model Selection:
Use small language models (SLMs) for classi ication, retrieval, or scoring tasks.
Reserve large models for high-value reasoning only. Consider a tiered fallback
strategy—start small, scale up only when needed.

• Interaction Control:
Limit chain-of-thought or tool invocations per task. Cap recursive planning
depth to avoid runaway token loops.

• Reuse & Caching:

Cache prompt responses for repetitive inputs (e.g., FAQs, policy lookups) to
avoid reprocessing. Apply hashing for cache keys.

7.2 CARBON FOOTPRINT REDUCTION

Running LLMs and multi-agent systems incurs non-trivial energy use. Apply
sustainability practices to reduce your environmental impact.

• Carbon-aware Scheduling:
Run batch work lows (e.g., end-of-day reports, bulk risk assessments) during
green energy windows.

• Geographic Awareness:
Choose data centers powered by renewables. Avoid carbon-intensive regions
for large workloads.

• Execution Locality:
Shift inference or lightweight reasoning to edge or local environments when
feasible, reducing cloud compute usage.

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• Measure & Report:

Use SCI (Software Carbon Intensity)-aligned estimators to measure emissions
per work low or user session. Track mg CO₂ per decision as a core KPI.

7.3 COMPLEXITY REDUCTION FOR MAINTAINABILITY

Even a performant agent can become unmanageable if overly complex. Aim to
simplify wherever possible:

• Minimize Agent Count:

Don’t over-decompose. Use modularity only where it adds value (e.g., separation
of roles like planner vs. executor).

• Reduce Inter-agent Dependencies:

Loosely coupled agents are easier to test, deploy, and debug. Avoid hard-coded
hierarchies unless required.

• Use Uni ied Toolchains:

Centralize observability, prompt management, and model routing to avoid tool
fragmentation.

• Documentation and Reusability:

Maintain prompt libraries, agent behavior expectations, and cost-carbon
dashboards as living artifacts.

Optimizing cost, carbon, and complexity is not an afterthought—it is part of

responsible, enterprise-grade AI design. These decisions not only reduce overhead,
but also build trust, improve sustainability posture, and enable long-term
maintainability.

For deeper strategies and architectural insights on this topic, refer to my book:
Lean Agentic AI: Minimizing Cost, Carbon, and Complexity - [Link]

8. DEPLOY IN CONTROLLED ENVIRONMENTS

Before releasing AI agents into full production, deploy them within sandboxed,
controlled environments. These environments simulate real-world systems while

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o ering oversight, rollback mechanisms, and safety gates. Controlled deployment

reduces operational risk, supports compliance, and enables iterative learning.

8.1 SANDBOX DEPLOYMENT FOR SAFETY

Deploy the agent in a non-production replica of the system—mirroring tools, data
lows, and security protocols. Key goals at this stage:

• Observe end-to-end agent behavior in realistic conditions.

• Validate integrations with APIs, databases, and external tools.
• Monitor logs for prompt injection vulnerabilities or tool misuse.
Example: A loan underwriting agent in sandbox should run on real scoring engines
and policies, but without issuing real approvals.

8.2 SHADOW MODE ROLLOUT

In shadow mode, the agent operates alongside human work lows but without making
actual decisions.

• Agents provide outputs (e.g., risk ratings, draft responses) that are reviewed but
not acted upon.

• Human feedback is captured to compare agent vs. expert judgment.

This phase is critical for:

• Tuning thresholds and con idence scores.

• Identifying edge cases the agent mishandles.
• Calibrating when to activate human-in-the-loop controls.
8.3 GRADUAL TRAFFIC SHAPING
Move from sandbox to production incrementally, with:

• Percent-based rollouts (e.g., 5% of users see agent-generated answers).

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• Time-of-day gating (e.g., activate agents only during monitored hours).

• User-type segmentation (e.g., expose agents only to internal sta irst).
Track key metrics like:

• Acceptance rate of agent recommendations

• Manual override frequency
• Response latency under load
8.4 SAFETY NETS AND KILL SWITCHES
Agents in production must always have boundaries:

• Action Approval Controls: Route certain decisions (e.g., account freezes, large
transactions) for manual review.

• Rate Limits: Prevent runaway loops or tool overuse.

• Kill Switch: Instant o -switch in case of policy violations, hallucinations, or
anomalies.

8.5 CONTINUOUS MONITORING HOOKS

Even during controlled rollout, instrument the environment with telemetry:

• Prompt and response logging

• Latency and token tracking
• Cost and carbon estimation
• Real-time error alerting
This ensures you’re not only observing performance, but also capturing early signals
of degradation or risk.

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9. CONTINUOUS MONITORING & FEEDBACK

Post-deployment, AI agents must be actively monitored—not just for uptime, but for
performance, reliability, compliance, and user satisfaction. Continuous feedback
ensures agents improve over time, adapt to new regulations, and avoid silent failure
modes. In inancial applications, this monitoring is critical for risk control and audit
readiness.

9.1 REAL-TIME TELEMETRY FOR LIVE MONITORING

Set up dashboards that track:

• Usage Metrics: Number of interactions, peak usage times, query types.

• Latency: Response times per agent and tool invocation.
• Token & Cost Tracking: Tokens consumed per session, cost per interaction.
• Emission Metrics: Approximate CO₂ output per work low using SCI-aligned
calculations.

Enable alerts for anomalies—e.g., sudden token spikes, increased rejection rates, or
degraded latency.

9.2 BEHAVIORAL DRIFT DETECTION

Monitor for shifts in agent behavior over time:

• Output Drift: Has the agent started giving longer, vaguer, or riskier answers?
• Decision Drift: Are approval/rejection patterns changing compared to baseline?
• Prompt Sensitivity: Do small variations in input now lead to unexpected
outputs?

Use A/B testing or golden dataset comparisons to detect these changes early.

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9.3 HUMAN-IN-THE-LOOP REVIEW LOOPS

Maintain a structured process for human validation:

• Randomly sample agent decisions daily or weekly.

• Log cases where humans overrule agent decisions and track patterns.
• Use feedback to retrain prompts, adjust guardrails, or revise memory.
This ensures regulatory compliance and o ers a human safety net for critical
outcomes like loan denials, fraud lags, or investment advice.

9.4 USER FEEDBACK INTEGRATION

Collect feedback directly from users or downstream reviewers:

• Was the response helpful, accurate, and easy to understand?

• Did the agent escalate or defer appropriately?
• Were there hallucinations or overcon ident recommendations?
Integrate these insights into a feedback cycle to adjust prompt design, model choices,
or agent policies.

9.5 POST-INCIDENT ANALYSIS

When errors or policy breaches occur, conduct structured root cause analysis:

• Was it a model failure, prompt gap, or tool malfunction?

• Was the memory trace incomplete or misleading?
• Were safeguards (e.g., kill switch, escalation) triggered?
Document incidents for internal learning and external audit readiness.

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Continuous monitoring and iterative improvement are what transform an experimental

agent into a trusted production-grade system. Especially in inance, this diligence
forms the backbone of responsible and sustainable AI operations.

10. GOVERNANCE, RISK & COMPLIANCE (GRC)

As AI agents assume more autonomy, governing their behavior becomes non-
negotiable—especially in sectors like inance where errors can lead to regulatory
penalties, reputational loss, or systemic risk. A strong GRC framework ensures agents
operate within de ined boundaries, adhere to legal requirements, mitigate risk, and
remain aligned with organizational values.

10.1 AGENT ROLE DEFINITION & ACCOUNTABILITY

Clarify agent responsibilities upfront:

• De ined Scope: What decisions can the agent make independently?

• Boundaries: When must it escalate or defer to a human?
• Ownership: Who is accountable for the outcomes—business teams, model
owners, compliance leaders?

This avoids ambiguity during audits or incidents and supports traceable governance.

10.2 REGULATORY COMPLIANCE & POLICY ENFORCEMENT

Ensure agent design and outputs meet all applicable laws and internal controls:

• Regulations: Map agent functions to mandates such as GDPR, AML, KYC, SOX,
or Basel III.

• Policy Guards: Include checks that lag regulatory breaches, misuse of tools, or
forbidden language.

• Audit Logging: Log agent actions with timestamps, tool usage, and model
paths for forensic traceability.

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Example: An agent suggesting inancial advice must retain proof of compliance with
investor risk guidelines.

10.3 RISK MONITORING & CONTROL MECHANISMS

Anticipate, detect, and respond to risks proactively:

• Risk Registers: Maintain a list of known agent risks (e.g., hallucinations, data
drift, bias propagation).

• Threshold Alerts: Set boundaries for abnormal behavior (e.g., sudden spike in
approval rates).

• Kill Switches: Ensure agents can be paused or terminated safely if behavior

deviates from expected norms.

Example: A loan approval agent must auto-disable if it starts bypassing income

veri ication checks.

10.4 ETHICAL ALIGNMENT & BIAS GOVERNANCE

Ethical AI is both a reputational and operational necessity:

• Conduct regular bias audits using diverse personas and datasets.

• Include explainability tests to verify agents do not produce opaque or
discriminatory outcomes.

• Align outputs with principles of fairness, inclusivity, and human dignity.

10.5 SUSTAINABILITY AS A GOVERNANCE DIMENSION
Include environmental metrics in your AI GRC dashboard:

• Emissions Monitoring: Estimate per-decision CO₂ impact.

• Sustainable Workload Planning: Favor low-carbon regions and green energy
windows.

• Carbon KPIs: Link sustainability goals to internal scorecards and ESG reporting.

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GOVERNANCE AUDIT IN PRACTICE: A SAMPLE QUESTION

Let’s take an example of a question an auditor, regulator, or compliance o icer might
ask during an AI system review for a inancial institution:

“Can you demonstrate how your loan underwriting agent ensures compliance with
both Fair Lending laws and internal bias mitigation policies when processing high-
volume applications—while maintaining traceable decision-making logic, measurable
carbon footprint, and transparency for a rejected applicant from a protected
demographic group?”

Such a question tests the maturity and auditability of your agentic system across
multiple dimensions:

✅ Traceable decision logic and memory

✅ Real-time bias detection or escalation pathways

✅ Secure logs for full audit trail

✅ Transparent documentation of model/tool usage and reasoning steps

✅ Carbon footprint tracking for responsible compute usage

✅ Clearly de ined responsibilities between agents, humans, and oversight functions

Having followed the structured 10-step framework laid out in this report—from
de ining purpose and decomposing agent roles to monitoring emissions and
embedding governance—you are well-equipped to answer such questions con idently,
with both evidence and explanation.

This is the hallmark of responsible, production-grade AI: not just building systems that
work, but building systems you can defend, document, and continuously improve.

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REALIZING THE 10-STEP FRAMEWORK: BANKING

USE CASE – AI LOAN UNDERWRITING SYSTEM
Let’s walk through a real-world application of our 10-step agentic framework by
designing an AI-powered loan underwriting system in a banking environment. This
system automates the evaluation of loan applications while upholding fairness,
compliance, transparency, and sustainability.

1. DEFINE PURPOSE & REQUIREMENTS

The objective is to automate the evaluation of personal loan applications—reducing
time-to-decision while ensuring regulatory alignment and ethical oversight. Key
stakeholders include applicants, bank loan o icers, risk managers, compliance teams,
and legal advisors. Success metrics are clearly de ined: decisions for low-risk
applications must be returned within two minutes; escalations are routed for review
within one to two minutes; any rejections are reviewed through a human-in-the-loop
mechanism. The system targets a cost-per-evaluation below $0.50 and aims for a
carbon footprint under 100 mg CO₂ per decision. The ultimate measure of success is
not just operational e iciency but responsible automation that aligns with both
customer outcomes and ESG objectives.

2. DESIGN THE AGENTIC BLUEPRINT

The system is structured around multiple agents, each handling a speci ic
responsibility in the underwriting pipeline. There’s an input validation agent to check
data integrity, a credit risk analyzer to evaluate applicant risk, and a policy compliance
agent to ensure the decision aligns with Fair Lending laws. A decision aggregator
brings together inputs from all agents and generates a recommendation, while an
explanation generator produces a clear rationale for the decision. If any violations or
uncertainties are detected, an escalation agent activates, routing the case to a human
reviewer. This design follows a role-based architecture, enabling specialization,
modularity, and coordinated work lows.

3. CHOOSE THE RIGHT MODELS & TOOLS

The agent system dynamically selects models based on complexity. Simpler LLMs are
used for common low-risk pro iles, keeping costs and emissions low. For ambiguous or
edge cases, more capable models are used alongside tools like credit scoring APIs,

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internal policy engines, and regulatory compliance checkers. Prompt templates are
carefully crafted to elicit accurate, fair, and reproducible reasoning. Toolchain
orchestration is tightly integrated, ensuring agents can access external data and
perform validations without leaking sensitive information.

4. ENABLE CONTEXTUAL MEMORY

As each application progresses, relevant interactions, signals, and decisions are stored
as contextual memory. This allows agents to refer back to earlier assessments, such as
fraud checks or credit scores. The system creates a persistent trace that includes
decisions made, models used, parameters passed, and outcomes produced. This
memory architecture is optimized for auditability—each case can be reconstructed
later to understand how the inal outcome was reached.

5. INCORPORATE REASONING & PLANNING

The system supports multiple levels of reasoning. Straightforward applications are
handled using templated work lows. More complex cases invoke Chain-of-Thought
(CoT) reasoning, where agents explicitly list decision steps, such as weighing credit
score, employment history, and repayment capacity. For highly nuanced or borderline
cases, Tree-of-Thought (ToT) reasoning is applied, allowing the system to simulate
alternative decisions and choose the most compliant and ethical path. This approach
balances e iciency with deliberation, ensuring thoughtful outcomes even at scale.

6. VALIDATE WITH SIMULATION & STATIC CHECKS

Before deployment, the system is rigorously validated using both static analysis and
simulation. Prompts are evaluated for clarity, fairness, and hallucination resistance.
Simulations are run on thousands of historical and synthetic applications, including
pro iles representing protected demographic groups. The objective is to con irm that
decisions are consistent, fair, and explainable across all applicant segments. This
preemptive validation helps detect biases, regulatory risks, and logic failures before
the system reaches production.

7. OPTIMIZE FOR COST, CARBON, AND COMPLEXITY

E iciency is built into the system’s core. Default decision paths use small models,
activating heavier models only when necessary. Prompt designs minimize token usage
while preserving context and accuracy. The infrastructure is carbon-aware—execution
is scheduled in green cloud regions, and emissions are monitored continuously. The

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system maintains an average carbon cost of less than 100 mg CO₂ per application and
dynamically scales compute resources based on case complexity.

8. DEPLOY IN CONTROLLED ENVIRONMENTS

Deployment begins in a controlled sandbox. The AI agent runs in parallel with human
underwriters, generating decisions in shadow mode without a ecting real outcomes.
This phase enables comparison, re inement, and trust-building. Once system
decisions consistently align with expert judgments and no major deviations are
observed, the agent transitions to production— irst with low-risk applications and later
with full-scale integration.

9. CONTINUOUS MONITORING & FEEDBACK

Once live, the system is continuously monitored. Real-time dashboards report key
metrics such as decision latency, cost per evaluation, emissions per case, approval/
rejection rates, and escalation frequency. Human reviewers can lag questionable
decisions, which feed into the system’s retraining pipeline. Drift detection and fairness
monitors track any emerging bias patterns, ensuring that the system evolves with new
data and remains ethically sound.

10. GOVERNANCE, RISK & COMPLIANCE

Governance is embedded throughout the lifecycle. Each agent is assigned speci ic
roles, permissions, and escalation thresholds. All decisions are logged with full
traceability—what model was used, what tool was called, what reasoning was applied,
and what the inal outcome was. Policy enforcement modules ensure that Fair Lending
compliance is not bypassed, even under load. Regulatory audits are supported with
timestamped logs, prompt histories, memory traces, and emissions data.

For example, if an auditor asks, “Can you demonstrate how your underwriting agent
ensures compliance with Fair Lending laws and internal bias mitigation policies for
high-volume applications, while explaining the rationale for a rejection involving a
protected demographic?”—this system can produce a detailed trace. It will show the
credit logic applied, the exact decision path taken, the tools used to assess risk and
compliance, the human oversight involved, and the carbon footprint generated—all in
one auditable record.

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This is how agentic systems move beyond automation into trustable, sustainable
intelligence—capable of delivering decisions at scale without compromising ethics,
auditability, or environmental responsibility.

SUMMARY
This paper outlined a structured, end-to-end approach to building AI agents
responsibly—balancing performance, reasoning, auditability, and sustainability. The
10-step lifecycle framework covered every phase of agent development: from de ining
purpose and stakeholder alignment to planning agent interactions, selecting e icient
tools, embedding memory, reasoning through complexity, and ensuring deployment is
governed by strong compliance practices.

A practical banking example brought these concepts to life, demonstrating how a loan
underwriting system can be built to deliver decisions that are fast, fair, auditable, and
environmentally conscious. Through modular design, thoughtful memory, planning,
and continuous monitoring, the framework empowers organizations to move beyond
experimental AI toward mature, production-ready systems that are defensible and
trustworthy.

The goal is clear: AI agents should not just automate tasks—they should operate with
clarity, context, responsibility, and respect for the real-world systems they a ect.

ABOUT THE AUTHOR

Navveen Balani is a global technology leader and author with deep expertise in
sustainable AI, intelligent systems, and responsible engineering practices. He has
contributed to the irst ISO standard for software carbon measurement and has
pioneered enterprise-wide AI frameworks that prioritize accountability, traceability,
and environmental impact.

Navveen’s body of work focuses on helping organizations and leaders adopt intelligent
technologies with purpose and control. To explore his broader thinking around agentic
design and the future of AI, refer to his books:

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• 📘 Lean Agentic AI: Minimizing Cost, Carbon, and Complexity

[Link]

• 📘 The New AI Engineering Mindset: Navigating Uncertainty and Opportunity in

the Age of Intelligent Machines
[Link]

• 📘 Empowering Leaders with Cognitive Frameworks for Agentic AI: From

Strategy to Purposeful Implementation
[Link]

To connect or learn more, follow his latest work on responsible compute, agentic
work lows, and sustainability in AI at [Link]

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