The previous sections have outlined the complete waveform compression algorithm for lossless coding. There are a wide range of applications whereby some loss in waveform accuracy is an acceptable tradeoff in return for better compression. A reasonably clean way to implement this is to dynamically change the quantisation level on a segment-by-segment basis. Not only does this preserve the waveform shape, but the resulting distortion can be easily understood. Assuming that the samples are uniformally distributed within the new quantisation interval of , then the probability of any one value in this range is and the noise power introduced is for the lower values that are rounded down and for those values that are rounded up. Hence the total noise power introduced by the increased quantisation is:
It may also be assumed that the signal was uniformally distributed in the original quantisation interval before digitisation, i.e. a quantisation error of .
Shorten supports two main types of lossy coding: the case where every segment is coded at the same rate; and the case where the bit rate is dynamically adapted to maintain a specified segmental signal to noise ratio. In the first mode, the variance of the prediction residual of the original waveform is estimated and then the appropriate quantisation performed to limit the bit rate. In areas of the waveform where there are strong sample to sample correlations this results in a relatively high signal to noise ratio, and in areas with little correlation the signal to noise ratio approaches that of the signal power divided by the quantisation noise of equation 22. In the second mode, this equation is used to estimate the greatest additional quantisation that can be performed whilst maintaining a specified segmental signal to noise ratio. In both cases the new quantisation interval, , is restricted to be a power of two for computational efficiency.