1) Do the army unit by unit, getting one squad done before moving on to another.
2) Do the army as a whole, getting one stage done on the whole force before moving on to another stage.
I'm pretty solidly in the second camp. Assembly lines are my friend. Here's how I go about making a new army:
* Decide what army.
* Fiddle with lists at X point level until pretty satisfied.
* Get the required figs to build that list.
* (Finish other projects)
* Come back to army, start planning.
* Clean/assemble entire army.
* Prime army.
* Paint army in stages - undercoat everything, do color A on everything, repeat until fully painted.
* Washes/drybrushing/highlights on everything.
* Base and seal everything.
I vary it a bit sometimes, and often will do a test figure first so I'm not flying blind. But by and large the army gets done in big batches of one stage at a time.
For me there are definite advantages for doing it this way. I get the whole force done at once. A lot of the time I can spend painting is in short bursts, so being able to just do one thing for me makes for the most productive use of that time - less time opening and closing paints, cleaning brushes, mixing, pulling out and putting tools away, etc. It may seem like just a little, but it adds up.
There's definitely advantages for the other way, going unit by unit. For some the sense of accomplishment and progress is better when they can see part of the army completely finished. If you're a stickler for playing only with painted figs, it allows you to play games with the army sooner - paint up 500pts, play games, paint up another 500, play games, etc. And if you want to get started on an army but can't afford to buy it all in one shot, this can definitely be the way to go. Buy squad, paint, buy another one, paint, etc.
Which way do you do it? Do you break it down by stages or by unit? Some other method?