There is a wide range of project methodologies used in project management. These will vary based on the industry, organization, or the individual project manager. Most methodologies are subsets of two broad types:
The project manager chooses the method based on how much is known about the requirements for the expected deliverables.
Phase-based projects are used when the results are well defined, for example, in the construction of a house. Phase-based is also used for safety-critical projects, such as avionics software for airplanes or nuclear power plant monitoring. Planning is considered the most important aspect of a phase-based project.
Before any work begins, the project team will create detailed documents outlining the requirements for the deliverables, the schedule and the budget, and a timeline showing exactly how the work will proceed.
A phase-based project will then proceed sequentially through each step, with the intent that the planning phase will not be revisited. That's why this type of project is often known as a “waterfall project” because it is difficult to move back upstream once you've moved on to the next stage.
Iterative projects, on the other hand, don't put such an emphasis on planning. They are used when the final product cannot be as well known when the project starts, or when the results are more difficult to define.
So how does that work if the project doesn't know what it's producing? Each stage of an iterative project focuses on creating small deliverables that help inform the next stage of development. Between each stage, the deliverables from the last stage are tested and new plans and new deliverables are targeted for the next stage.
It might be easier to think of an iterative project as a collection of small phase-based projects completed in succession. These continue until the project has produced a product that satisfies the initial goals.
One well-known iterative methodology is called “agile”, and there is a defined process for how it should proceed. You'll often find this and other iterative methodologies common in the technology projects that we discussed earlier, and also in research and development.