(FORTUNE Magazine) – Scanning the Manhattan headquarters of Urban Box Office Network on a crisp Tuesday morning last November, Ayana Mangum felt a power similar to that possessed by the protagonist in the film The Sixth Sense. But Mangum's gift was slightly different: Instead of dead people, "I saw fired people," she says. Mangum had it on good authority that the ailing company was going to sack most of its staff, but she couldn't tell a soul. "Every day I got up thinking it would be my last," she recalls. Rumors escalated--even Mangum's grandmother knew about UBO's woes--but with no clear word from management, "everyone was in limbo." When the news finally hit and Mangum and 326 others lost their jobs, chaos ensued. She says of management, "They had no idea what they were doing. It was an awful, awful experience." UBO CEO Adam Kidron admits the layoff day itself was "horrendous," but insists he gave employees a week's notice that their jobs were in peril.

These days, "seeing fired people" requires no special gift--they're everywhere. Xerox, Lucent, Sara Lee, Amazon, J.C. Penney, Gateway, Nortel, Motorola, Dell, Aetna, AOL Time Warner (parent of FORTUNE's publisher), and Gillette have all announced layoffs, and the list grows by the day. In January outplacement firm Challenger Gray & Christmas tallied 142,208 announced job cuts, the highest monthly number since it began keeping track in 1993. While some dot-coms may bungle layoffs, the majority of the FORTUNE 500 plan the process with a precision that makes political conventions seem extemporaneous. "These things tend to be orchestrated particularly well," notes outplacement guru Larry Stybel.

And that could be a problem in itself: Companies have become so proficient at the science of layoffs that many have forgotten there's an art to it. Operating strictly by the book is fine for baking a cake; it's not advisable when dealing with people. "Organizations that have been through [layoffs] several times think it's business as usual," says Tom Silveri, CEO of Drake Beam Morin. "This is not a process that should be taken lightly." Herewith, then, is FORTUNE's layoff primer, in three parts.

THE PLANNING: The first thing to do, experts agree, is communicate a clear rationale for the cuts. "Employees are stakeholders, and you have to make the same justification to them that you do to investors," says Towers Perrin managing director Jeffrey Schmidt. Warning of possible layoffs may create anxiety around the water cooler, but it does give employees time to prepare themselves emotionally and financially.

At Transact Technologies, which makes receipt printers found everywhere from McDonald's to the New York Stock Exchange, 70 of its 205 employees will lose their jobs at the end of the year. But when CEO Bart Shuldman broke the news last month, no one was surprised. Shuldman had explained to employees back in December that layoffs were possible at the Wallingford, Conn., plant, which makes outdated impact printers. The company is betting instead on a new inkjet technology that requires fewer workers. "We're not going into this thing cold," he says. "If employees know what's going on, they can deal with it."

Once you've established the need for layoffs, you have to decide which positions to cut. That's anything but a one-man job. For starters, make sure division managers are involved, so that you don't end up laying off an employee with irreplaceable expertise. That could be dire. Says one Web developer who was canned at a startup financial services company: "They had no idea that the project I was leading was the corporate Website redesign," he crows. He agreed to return for three days to finish the project. But he charged a steep price: $16,000 in video equipment.

During the planning process it's also critical to get input from all sides--legal, human resources, finance, operations, and PR. "Doing it strictly through HR is a mistake," Silveri says. Consulting with lawyers, for example, may help keep an eye on the racial, age, and gender makeup of the staff--and avoid a discrimination suit.

Don't forget to prepare the people who will be breaking the news. The managers doing the firing need to know how to calmly convey that the decision is final, but not personal. Nearly half (46%) of the companies surveyed by HR consulting firm Lee Hecht Harrison fail to provide such training--and that can get messy. Silveri recalls a manager who was so distraught that he vomited in the bathroom before a termination meeting.

D-DAY: The day of the formal announcement is the most difficult, no matter how well choreographed. Most consultants say to make it early in the day--"The most inhumane aspect was waiting all day," remarks one victim--and early in the week. Avoid holidays, keep the meetings short, don't get personal, emphasize the business rationale, and address employee concerns. An employee's manager should break the news, not a faceless corporate axman. "It would have been easier to hear it from my boss," says a senior producer at CNN who was laid off in January. "It feels like a betrayal."

What is said is just as important. Be ready to accept responsibility. "It's easy to say the economy is going through a down cycle," says Alan Downs, a former "corporate executioner." "One of the most effective things is to say, 'We goofed.' " As for hiring burly security guards to escort people out, it may make sense to have them on hand--you never know what could happen--but they shouldn't be conspicuous.

THE AFTERMATH: Communication with "survivors" is critical, especially after the deed is done. "The worst thing managers can do is what they want to do, which is hide in the office," says Joan Caruso, managing director at the Ayers Group. And in times of duress, great communication may require more than just talking. That's why, days after Razorfish COO Jean-Philippe Maheu axed some 400 staffers, he visited some of his remaining consultants (dubbed "fish") at client Ford Motor. "I believe in communication, but I believe more in leading by example," Maheu says.

Survivors also need to know if their jobs have changed. Are they expected to do the work of those laid off? Let them know. You may also have to "re-sell" the company's vision and its future prospects. "Part of laying off people is recruiting those who stay," says Jacques Leger, managing consultant at Watson Wyatt.

Remember that you will see these people again, as clients, competitors, customers--even employees. "Companies frequently forget that the person you're firing today is not going to vanish into the night," says Stybel. Layoffs, like ghosts, can haunt a company for years. If you fail to appreciate the art of the layoff, the thing that goes bump in the night may be your company's reputation.

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