We propose a generalization of proper orthogonal decomposition (POD) for optimal flow resolution of linearly related observables. This Galerkin expansion, termed ‘observable inferred decomposition’ (OID), addresses a need in aerodynamic and aeroacoustic applications by identifying the modes contributing most to these observables. Thus, OID constitutes a building block for physical understanding, least-biased conditional sampling, state estimation and control design. From a continuum of OID versions, two variants are tailored for purposes of observer and control design, respectively. Firstly, the most probable flow state consistent with the observable is constructed by a ‘least-residual’ variant. This version constitutes a simple, easily generalizable reconstruction of the most probable hydrodynamic state to preprocess efficient observer design. Secondly, the ‘least-energetic’ variant identifies modes with the largest gain for the observable. This version is a building block for Lyapunov control design. The efficient dimension reduction of OID as compared to POD is demonstrated for several shear flows. In particular, three aerodynamic and aeroacoustic goal functionals are studied: (i) lift and drag fluctuation of a two-dimensional cylinder wake flow; (ii) aeroacoustic density fluctuations measured by a sensor array and emitted from a two-dimensional compressible mixing layer; and (iii) aeroacoustic pressure monitored by a sensor array and emitted from a three-dimensional compressible jet. The most ‘drag-related’, ‘lift-related’ and ‘loud’ structures are distilled and interpreted in terms of known physical processes.