Before I start I usually do a few color thumbnail sketches and also value studies to work out all the big visual questions. The tiny paintings are like quick visions of the final artwork. Reference photos help to provide detail so that you don't have to make up things out of your head.
I started with a pencil drawing, then scanned it into the computer.

Stage 1: Color studies, reference photos and pencil layout.

Stage 2: Block-in and yellow glaze.

I usually glaze a light color overall so when I layer colors on top some of it will show through. Most of my Photoshop techniques are based on my traditional painting background. I have found digital tools to recreate the same look.
On the yellow layer I put the layer setting on multiply so the pencil doesn't get lost. I also block in the black background.

Stage 3: Color block-in to set up the lift-out technique.

Ok. I flatten the image in stage 2 so I have few layers to deal with. This next stage is what I call the lift-out stage. You put color down and lift out the highlights to sculpt the overall form. I airbrushed green and orange on the face which you can see on layer 1. Then I add a layer mask to the layer so that I can hide part of the green and orange. It is like erasing it except with a layer mask you actually have a temporary alpha channel. If you don't know what layer masks are you are really missing a wonderful tool.

Stage 4: Continue lift-out technique.

I continue with layers of color using layer masks. These stages are about building up the body color and building the light and shadow. Notice the areas that I lift out are the highlight shapes. The highlights are starting to develop into shapes on the face.

Stage 5: Block-in more darks.

I move around the painting blocking-in areas to build up the layers of paint. It helps to work the whole painting and bring up the layers together. In this stage I blocked-in the dark in his mouth and the coffee cup. Also you can see I am building up the background of coffee cups by glazing dark green slightly in the background and using the same layer mask technique to lift out the highlights.

Stage 6: Build up more color.

I added more color into hair and airbrushed more green into the face and hand. Also more light violet into the background and I blocked in the shirt.

Stage 7: Build up the body color.

Now I begin to paint more directly with the paintbrush and airbrush tool. I pull out the highlights by painting into the highlight shapes with opaque light green and yellow. For the shadow I begin to add more cool green to cool off the shadows more. I also add more brighter orange into the hair to make it hotter. Also I build up the lips and chin.

Stage 8: Add detail to hair and background.

I add more detail to the hair and developed the backround. The background layers have a cool blue. Using the layer masks I lift out the cool blue to show the lighter green and make light green highlights on the coffee cups.

Stage 9: Add more highlights and detail

I add more coffee cups going off into space. The areas I work more on are the hand, the mountain, the big coffee cup, the mouth, the hair and the steam.

Stage 10: Add more highlights and detail

I add more steam and detail on the face around the eyes.

Stage 11: Add more final details.

At this point I am starting to add final details such as nose hairs, detail in eyes, hair on ears, eye lashes, skull necklace and of course the ferret. He was a last-minute idea of adding a sidekick that echoes the troll's actions. One last detail is to add the coffee ear ring.

Stage 12: The finished painting.

The final details such as whiskers and fine steam are added. Also I add a coffee ear ring to the ferret for fun.