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In Windows 7, to create an environment variable:

From the Start Menu, right click on computer and select properties - this will open the System Control Panel

On-Chip SDK > Setting up the IAR_ARM_BASE Environment Variable > StartMenu.png

Select Advanced system settings from the lefthand sidebar - this will open the System Properties window

On-Chip SDK > Setting up the IAR_ARM_BASE Environment Variable > Advanced.png

On-Chip SDK > Setting up the IAR_ARM_BASE Environment Variable > SystemProperties.png

Add a new variable to either the User or System variables by selecting the New button

On-Chip SDK > Setting up the IAR_ARM_BASE Environment Variable > EnvVar.png

In the dialog:
- Variable name is IAR_ARM_BASE
- Variable value is the path to your EWARM installation, e.g. C:\Program Files (x86)\IAR Systems\Embedded Workbench 7.2

On-Chip SDK > Setting up the IAR_ARM_BASE Environment Variable > New.png

A similar method should work in later versions of Windows.