Find and right-click on the Computer icon, or go to Control Panel --> Administrative Tools and open Computer Management... Navigate to Disk Management, right-click or select Action from the toolbar on top, select create VHD (Virtual Hard Disk).
Create virtual drive image by browsing to location of your choice, select size and other virtual hard disk parameters and confirm your selection. NOTE: Depending on the size of the virtual disk you have created this could take some time... Please be patient!
After new virtual hard disk has been created initialize it (right-click the disk) selecting MBR partition type...
Create New Simple Volume (right-click unallocated disk space) assigning desired logical drive letter, size and finally formatting the volume (follow the wizard)...
After confirming all the steps you should now see newly created virtual hard disk under your disk management window.
Go back to Control Panel, click File History and select new drive which is now visible under available destinations... Follow wizard to select your own archiving preferences.
You are done!