Black nd white pic creation using Photoshop

I found a quickish method!

You had almost all of the workflow, and the 'cutout' part that you had, is what I was missing when trying at first.

Starting with this image, because I couldn't find the one you're using:

The longest part for me was masking out the background. You may also need to add a Black & White adjustment layer after step 2 if you're using a colour image, but want monotone. Here's the workflow I used, though there may be a few 'unnecessary' steps:

    Paste image into Photoshop.

    Right click the layer in the Layers panel and choose Duplicate Image....

    Go to Image → Adjustments → Posterize... and adjust the first layer to 4 levels and the second (duplicated) layer to 2 levels.

    Go to Filter → Filter Gallery... and select the Cutout filter. Set the Number of Levels to 4, the Edge Simplicity to 4, and the Edge Fidelity to 2. Use it once on each layer with the same settings.

    using cutout filter in PS

    Set the Opacity of the second (duplicated) layer to 62%.

    Add a Brightness/Contrast... adjustment layer and put the brightness all the way up, leave the contrast at 0.

    Mask the background if you want to, I prefer a clean background for this effect, so that's what I did.

    Save for Web...

    Drag and drop the new file on to an artboard, or use the open function, in Illustrator.

   

    Disclaimer: I cannot speak for the results in anything below Adobe CC, but I naively assume that you should get a very similar result in Adobe CS5 & CS6.

Also tried and tested on a famous image of Steve Jobs. It required 3 layers, and different opacity levels, and I found it better to run the image through PS and up the contrast after Live Tracing, the rest of the workflow was almost identical.