One of the reasons why Black Isle Studios, Obsidian Entertainment, inXile and such have such strongly written games and well designed worlds is because they set up a development cycle that is the polar opposite of the one outlined in this video. The team designs the background behind the world, NPC design, plot design, and narrative flow during the earliest pre-production cycle.
that's really cool, that's how it should be done if games want to be taken seriously as a media for good narrative.