Some people may get particular benefit from observing (e.g. people who tend to get totally immersed in a task). This should be taken into account during observer selection.
Only ask for volunteers for the role if you are confident that everyone can be effective.
In Carts and Horses there can be a useful role for one observer per team, but if the activity is being used early in a programme, it is likely to be more beneficial if everyone is a participant.