1. Create a Virtual Hard Drive a. In Disk Management, click Action in the menu bar and click Create VHD. Follow directions on screen to create the VHD, specifying its location on the hard drive and its size. You can make the size dynamically expanding. The VHD is listed as a Disk in the Disk Management window. b. Right-click the new disk and click Initialize Disk. Use the GPT/MBR partitioning system for the disk.