Contextual Design is a methodology for designing systems. The methodology was developed by Hugh Beyer and Karen Holzblatt (who formed a company called InContext,, and is described in detail in the book Contextual Design: Defining Customer-centered Systems.

The method is heavily user-centered. The design method can be described roughly as "observe the users, draw conclusions, and make a new system based on the observations and your ideas".

Here is a more detailed look at the different phases of the process:

Contextual Inquiry
The designers go to watch the customers to do the job with their current systems, write down everything noteworthy, and ask if they're unsure. This phase also includes a full interview of the customer. The primary goal, of course, is to understand what the user is doing, why the user is doing that, and what they think they should be doing.
Interpretation session
So now you have a view of what the customer has done. It's time to make some sort of sense of it all. All points of the work that the interviewers have noted and all insights are considered. (Read: Write all observation on Post-It notes, and sort them, forming "diagram" of sorts of the work. This is fun. Trust me. The only thing that CD folks can't agree on is what colors the Post-It notes should be. =)
Work modeling and consolidation
This is the phase where the team draws diagrams. Lots of them. Lots and lots of them. All sorts of diagrams, starting from physical models of the workspace, ending to cultural models. And after this, the diagrams that model single specific customers are merged into consolidated diagrams that describe what all users generally do.
Work redesign through visioning and storyboarding
This is where people throw together (possibly outrageous and wild) new ideas of the work, and create storyboards of what they thought would be good models of work. This is the time of redesign and invention.
User Environment Design
This is where the model of the new system is starting to look like what it will become. Here, the system is modelled so that the new patterns of the work and the new user interface are shown.
Mock-up and prototype
Now we have a design - so it's time to make prototypes. Paper prototypes are good for this. (When we did this in the course, we did the prototype with Flash.) Once you have made the prototype, it's again time to go to the customers and show the prototype to them, and hear what they have to say about it (and possibly make changes).

Compared to other design methods, contextual design is very time-consuming, but it's actually pretty fun and has good guarantee that you get a system that fits the customer's needs.



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