So, I write a lot. A lot a lot. And I also roleplay a lot, mostly with tabletop stuff. But I have a system that I use loosely for all characters when I write that are going to be in more than one scene and for all characters that I intend to play in a roleplay. I guess that is my credentials? I'll just give the full list since you asked for steps.

I start with a concept. Sometimes I do this with a random word generator, which is why I've ended up with some bizarre characters. I really hate the idea of playing anything that I feel like has already been created unless I'm doing it as a direct homage. That's just me though. Do what makes you happy.

After I have the gist of a concept for a character (an usually an image in my mind with vague motives) I start with a questionnaire like this one and answer about half the questions to give the character anecdotes about themselves and start rooting them into their world in such a way that they have connections and stories about themselves. Everyone has some awful embarrassing childhood memories. Most people who are good people have still done at least one bad thing in their life. Get all the sides. Don't just get a fear, get the story that inspired the fear and all of the other times that fear has gotten in the way of their life.

Personal Rule (since you did ask my steps) As an aside, I come up a sexuality for my characters, but I never discuss it nor even write it down. I come from a philosophical school of thought that says that trying to label a person's sexuality is like trying to herd cats, and I believe that it is divisive to try to simplify such a rich spectrum of possibilities. When I write a character, their sexuality is almost never important to the story. I think about my own sometimes, and how often it dictates my behavior (almost never as it turns out) and I think I've only had it be important in stories when playing a married character and when playing a frat boy. Reference-wise I think that China Mieville and Alan Moore (insane man though he may be) are two authors that handle writing about sexuality in the most developed way I've ever read.

Another personal rule of mine is that if I plan to play a character with anything that could remotely be considered a disability, I never do so unless I have had the opportunity to interview a person who actually has that disability. You really need to get peoples' perspectives sometimes because if you aren't living with a thing you can never really fathom it completely and there will be details you miss that will make you look dumb to anyone who actually has the condition. I'm autistic and I'll say there's an enormous difference for me watching TV and seeing a loving and understanding portrayal of autism (Abed in Community warms my heart) versus a rather vicious ham-handed and unresearched attempt (like Big Bang Theory.) The last thing I want to do is misrepresent a medical condition.

After all the time and notes I often share it with partner and housemates to get feedback. They'll tell me what's cliche and overused, what's entertaining versus awkward or painful. Sometimes they'll say, "oh that reminds me of this from this" and give me a movie or TV show to watch or a book to read with a similar character I can use to help me act. I usually make some revisions after that.

The last step is the Mary-Sue Litmus Test. No exceptions for me, I test all of my characters and usually revise to try to get their score low low low. The idea of the test is to check characters to see if they are too riddled with awful cliches and nonsensical characteristics. It's the last step and it exists to catch those glaring issues that you might not have otherwise noticed. It also really takes you down a peg and I appreciate it for that. My character on this site, La, is my highest scoring character ever on the Mary-Sue Litmus Test with 20 points, but she is also my guilty pleasure character.

After that, write. I usually do about 2000 words / 4 pages single spaced a day to meet my deadlines and keep myself sharp, not counting roleplay. When you're done writing, read. There's a quote I like from Stephen King, which is "If you don't have time to read, you don't have time to write."

Anyway, hope The Alison Method helps or is at least entertaining.