I start off with a generic story idea first. (What is the final
goal for the player?)
Then I create the world the story is set in. (What kind of
world does all this happen in?)
Be sure to ask yourself questions about the culture in the world; for the most part, easy-moding this is not adding in unique cultural tidbits and just treating it as modern-day society with some backloggery on hygiene advancements. (some (professional) games incorporate baths, showering and toilets just fine in medieval games though)
Now you have a basic story and a basic world. The next thing I like to do is make the world map. Even if you won't use one in-game, it's useful for your own reference what the world looks like.
Next, I flesh out the story. What kind of hero is the main protagonist? What kind of allies should (s)he get? What kind of antagonists should there be, and are there notable events that I thnik should happen during the story?
When I have that general outline of a story, I start creating the maps. I create a map first, then add all dialogues/NPCs, and then add miscellaneous objects that can be examined just for that little extra touch.
I continue doing this for all maps until I reach the final map. At that point, I have a game that is "complete", as far as the story-aspect goes; parts of the story are made up as I go, following the basic story I had written down earlier. Some alterations will be made along the road, since I know myself; others might want to finish the story completely first.
All that's left to do is graphics, musical score, battle system and database modification. Since I hate all four of those equally, I like to try and delegate those to others.

If anything, though, I'd do battle system first, then modify the database to fit that battlesystem, then adjust graphics to fit both battlesystem and the world it plays in, and finally do a musical score.
Last touches go to adding items to be found in the maps, and then bugtesting it/checking the code meticulously for any errors.
Does this work? I have no idea, since I've been stuck at the maps for a while now, due to cardinal laziness and "Oh, hey, this RTP is seriously starting to annoy me". :P