Frame normally, leave an appropriate gap for window size.

Waterproof opening.

Put outside wall covering on. If flat that's great. If not flat you may want to allow for a flat portion the same width as the replacement window border so it can sit flat against wall.

Put window in with quality exterior caulk along the frame that hits the outside wall.

If the outside wall covering is some type of boards/siding , I'd see if it you can get it to just lay proud of the window frame for more water proofing.