Character Development
A great way to develop characters is by picking real people.  People you know.  These won't be shallow cardboard cut-outs.  They will have a history:  real joy, pain, pride and loss.  They will have desires and dreads.  They will have talents and flaws.

Even so, you will need to tailor them to your story.  You will need to tweak their presentation and use it to the stories advantage.  Even in nonfiction, a good writer must work hard to distill the "characters" that populate the work.

The hardest part of character development is devising a structure to upon which to assemble or reassemble your characters.  As a psychologist, I often am impelled to characterize a client in a short-hand way.  These days we aren't so likely to afix a simple diagnostic label on people.  We can better help when our descriptions are more full bodied-- when they capture more of the totality of the individual.

The structure I developed to train my interns is also the system I use to develop more realistic characters in stories.  The system is a square in a diamond.  The figure below demonstrates the concept in a simple mnemonic structure.

Each of the points of the diamond represents a thrust of the individual.  A thrust toward work, a thrust toward friends, a thrust toward family and a thrust toward romance.  Each will have a different balance of these thrusts.  These thrusts represent the characters outward orientations.  The square within the circle represents the internal aspects of the individual.  I commonly structure 4 internal aspects of the individual.  These are their self-awareness, their self-value, their spirituality, and their reactivity.  The last represents both their hysical response and their emotional response.

Each of the 8 features can exploited in your stories.  Your characters will serve their roles best if most of their features are revealed early on.  It makes for a great story when characters can grow and develop, but be sure that only one feature evolves for a given character.  People can only change so much.  More importantly, any character that is portrayed as changing in multiple areas loses definition.  Once the character's uniqueness is gone, your story will lose its spine.

I believe it is better to define the characters first.  That way you can catalog their features and decide how you will utilize them to develop your story's problem or solution.